Critics: Hollywood Tax Deals A 'House Of Cards' For Local Economies

Producers of the Netflix series "House of Cards" are in a very public dispute with the state of Maryland. It's over tax incentives the state provided to get the show to film in and around Baltimore. Now producers want even higher tax breaks. State legislators ended their session without approving them. Now the show is threatening to move. States and cities such as Chicago have long used tax credits to attract film and TV productions, but Alison Cuddy of member station WBEZ reports that film subsidies may not be all they're cracked up to be for state and local economies.

(SOUNDBITE OF THE SET OF "CHICAGO FIRE")

UNIDENTIFIED PRODUCER #1: Your mark will be gone in a day.

UNIDENTIFIED PRODUCER #2: Guys, marks are getting full.

ALISON CUDDY, BYLINE: Soundstage 11 inside Cinespace Chicago is the home of "Chicago Fire," a two-year-old TV series on NBC.

UNIDENTIFIED PRODUCER #1: Come on.

CUDDY: Today, crew and cast members are jostling on and off a small set designed to look like a firehouse break room.

UNIDENTIFIED PRODUCER #2: Ready, and action.

UNIDENTIFIED ACTOR: To commemorate Herman's last day...

CUDDY: Illinois governor Pat Quinn visited the "Chicago Fire" set earlier this year to announce film production has broken state records over the past two years. But Illinois' film economy is still pretty small. The state estimates total spending in 2013 was around $350 million. Some of that is a result of a tax credit the state legislature approved back in 2004. Back then, a good year was about $23 million. Now producers working here can earn up to 30 percent in tax credits for the money they spend locally. That means when they file their income tax returns, they can submit receipts for food and caterers or office supplies, crew salaries, and the state will refund 30 percent of the tax they paid. And one of the places they're coming is Cinespace Chicago.

ALEX PISSIOS: We have 18 stages to date. We're on plans already for an additional 12, and we will be building a water stage this spring.

CUDDY: Alex Pissios is a Chicago native and president of Cinespace. His uncle built the facility, almost 50 acres on the city's west side. The space is cavernous. the ceilings are almost 45 feet high. Pissios says his uncle got people like former mayor Richard M. Daley on board by being blunt.

PISSIOS: He said, LA is prostituting your city. They come in here, they shoot your beautiful location, and then they leave and spend the real money in other states.

CUDDY: Apparently that message hit home. The state gave Cinespace $5 million to get started. Then the city of Chicago ponied up a property tax break estimated to be worth $3.5 million over the next 12 years. And Hollywood producers started coming.

PISSIOS: They're like cockroaches. They find the space. They love the space. And that's a big, big thing for them 'cause that means they don't have to go somewhere, close a street down, move their caterers, move their teamsters, move their workers, move their actors. A lot of location shooting is done on the 50 acres.

CUDDY: State officials say the film industry has generated more than a billion dollars in spending over the past eight years. But in that time, the state gave out up to $300 million in tax credits.

ROBERT TANNENWALD: These credits really are expensive, and the amount of economic activity they generate overall isn't that great.

CUDDY: Robert Tannenwald is an economist based in Boston. He's an expert on state and local fiscal policy. Four years ago, he did an in-depth study on film incentives across 43 states. Tannenwald says, sure, there are short-term benefits. Hair-dressers or carpenters or movers get work right away. But it costs the state a lot to subsidize those jobs.

TANNENWALD: We're talking about over a hundred thousand dollars per full-time equivalent job. To me, that's not a very good job creation program. That's a very wasteful, inefficient one.

CUDDY: And states have to come up with the money to fund that through higher taxes or cuts to other programs.

TANNENWALD: The financing of film tax credits dampens the economic benefit from them.

CUDDY: So why would a state subsidize the film industry? Tannenwald says because other states do. He calls it competitive purgatory.

TANNENWALD: The producers will say, OK, you won't increase the credit that we want or you actually are going to reduce the credit or eliminate it. Bye bye. We're going to another state.

CUDDY: That's exactly what the producers of the Netflix series "House of Cards" are threatening to do in Maryland. And it's easy to see the temptation legislators face when presented with an infusion of cash. Back at Cinespace Chicago, Alex Pissios says, who wouldn't jump at a Hollywood producer's offer?

PISSIOS: How many businesses come in with a suitcase of $50, $60 million and say, you know what, we're going to spend this in your state now. It's going to be impacted now, not six years down the line. So those are the things that, you know, people don't realize the amount of money that's being spent when these productions come in. And it's unbelievable.

CUDDY: For his part, economist Robert Tannenwald would agree. He thinks it's unbelievable.

TANNENWALD: Betting on the creation of, let's say, a Hollywood midwest, is a bad bet. And if I were Illinois, with all the fiscal problems that it has now, I wouldn't be making a bet like that.

CUDDY: What Illinois has gambled isn't clear. The state's film office declined to provide a cost-benefit analysis of the state's film tax incentives. For NPR News, I'm Alison Cuddy in Chicago. Transcript provided by NPR, Copyright NPR.